Corporation Tax Act 2009 section 1126A

Attributable expenditure: special rules for consumable items

Section 1126A sets out special rules that restrict the cost of consumable items from qualifying as R&D expenditure where those consumables end up forming part of a product that is sold or otherwise transferred in the ordinary course of business.

• Expenditure on consumable items that are incorporated into a product (or transformed into a product) which is then sold or transferred for value in the ordinary course of business cannot be treated as R&D expenditure.
• Where only a proportion of the items produced is sold or transferred commercially, only that same proportion of the consumable costs is excluded from qualifying R&D expenditure.
• A transfer includes both a transfer of ownership (such as a sale) and a transfer of possession (such as hiring out), and disposing of waste or receiving test data in return for an item does not count as a commercial transfer.
• The rules apply broadly: a "relevant person" covers the company bearing the R&D cost, any subcontractor carrying out the work, any non-corporate party commissioning or performing the R&D, and any person connected to any of these parties.